UK and International Tax news
FTT Finds For HMRC In Tax Avoidance Case
Tuesday 24th October 2017
The First Tier Tribunal has recently found for HMRC in a case involving a tax avoidance scheme utilising spread bets on the stock market to create tax free spread betting gains for an employee.
HMRC brought the case against Root2 under the FA 2004 DOTAS rules. [see HMRC v Root2Tax Ltd, Root3Tax Ltd (in liquidation) – 2017 UKFTT 0696].
The FTT agreed with HMRC that the promoter had not abided by the DOTAS rules which require promoters to disclose arrangements/schemes to HMRC and for users also to disclose the use of such schemes in their annual tax returns.
The so called Alchemy scheme involved entering into a spread bet and a hedge contract, so the employee could win on the bet but lose on the hedge, or vice versa, with the overall effect of generating a small loss representing the counterparty’s turn. The employer or an EBT would then take over the hedge transaction when the potential liability was low, which would be a taxable benefit chargeable on the employee.
Where the employee won on the spread bet, the winnings were not taxable, whilst the loss on the hedge was borne by the employer or EBT.
The Tribunal judge was satisfied that the Alchemy scheme amounted to ‘arrangements’ in the statutory sense, that the scheme enabled, or might be expected to enable, a person to obtain a tax advantage, the main benefit, or one of the main benefits, of the scheme (if it worked) was the obtaining of that advantage, that the arrangements were in a standardised form and had substantially standardised documentation, in a form determined by the respondents, requiring minimal tailoring for each user, that the arrangements had been made available for use by more than one person, and the respondents were the ‘promoters’ of the scheme in the statutory sense. Given this, the arrangements were notifiable under DOTAS.
HMRC have various information powers to tackle non compliance with the DOTAS regime and promoters face penalties of up to £1m or more if they fail to disclose a scheme. In addition, disclosure under DOTAS is one of the three triggers which permit HMRC to issue accelerated payment notices to taxpayers.
If you would like further information on this decision, please contact Keith Rushen on 0207 486 2378.
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